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But it wasn’t all bad. Gap, which sells jeans and sweatshirts, managed to beat analysts’ estimates. Earlier this month, Walmart also managed to exceed expectations.

Taking a step back, it looks like consumers really are starting to pull back as unemployment creeps up. For companies, that means they have be at the top of their game as they compete for shoppers’ dollars. Dollar Tree , Shoe Carnival , and Big Lots will update with their latest figures next week.

For the economy, the Federal Reserve has been waiting for a consumer slowdown for a long time. The goal was always to take the heat out of growth without causing a contraction. Gross domestic product was even revised up to 3% in the second quarter on the back of stronger-than-expected consumption.

At the same time, the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, was revised slightly lower. Friday’s update to the PCE adds color to the picture.

That’s why a quarter-point interest-rate cut in September is all but certain. There’s still a risk the Fed waited too long to start cutting rates but, based on the evidence so far, it’s getting the soft landing just about right.

—Brian Swint

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Ulta Beauty, Lululemon Sales Disappoint; Gap Outshines

Ulta Beauty , the cosmetics retailer that recently caught the attention of investment managers at Berkshire Hathaway ,

reported disappointing numbers for the fiscal second quarter and lowered its full-year outlook, acknowledging the performance didn’t meet expectations because of a drop in same-store sales.

• Ulta reported revenue of $2.55 billion and earnings of $5.30 a share for its fiscal second quarter. It also cut its full-year forecasts for net sales, earnings per share, and same-store sales. Same-store sales dropped 1.2% in the quarter because of fewer transactions and smaller purchases.
• Lululemon Athletica ’s sales of $2.37 billion and same-store sales growth of 2% disappointed, but adjusted earnings of $3.15 a share topped expectations. Lululemon fumbled an attempt to keep shoppers interested, pulling a new model of leggings from its shelves in July after just a few weeks.
• Amid signs that North American consumers are growing more selective and competition in activewear has increased, Lululemon lowered its full-year guidance and now expects net revenue to range between $10.375 billion and $10.475 billion. It projects earnings of $13.95 to $14.15 a share.
• Gap ’s second-quarter revenue of $3.7 billion and adjusted earnings of 54 cents a share both beat expectations, as the apparel retailer raised its full-year margin and earnings forecasts. CEO Richard Dickson said Gap’s net sales, margins, and cash position are stronger than a year ago.

What’s Next: Gap is undergoing a multiyear turnaround strategy and now expects gross margins for the year to expand by about two percentage points, operating income in the mid-to-high-50% growth rate, and net sales up slightly from the previous fiscal year.

—Janet H. Cho and Sabrina Escobar

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Apple, Nvidia in Talks to Fund OpenAI Alongside Microsoft

Three of the world’s biggest technology companies may be taking another big step in artificial intelligence. Apple and Nvidia have discussed investing in a fresh fundraising round for OpenAI, the start-up parent company of ChatGPT, according to reports. They would join Microsoft in a new round led by Thrive Capital.

• The Wall Street Journal reported that the iPhone maker is in talks for an investment in the round, which could value OpenAI at about $100 billion. Bloomberg News reported Nvidia’s participation. Both reports cited anonymous sources. Microsoft is already an OpenAI investor. Apple and OpenAI couldn’t be reached and Nvidia declined to comment.
• A deal could put pressure on rival Alphabet , which owns Google. OpenAI recently rolled out a prototype of AI-powered search features that could put it in competition with Google’s own platform. An Alphabet representative couldn’t be reached. Barron’s owner News Corp has a content-licensing partnership with OpenAI.
• Investors have worried that Apple was falling behind in the AI race because it hadn’t disclosed generative-AI initiatives. That began to change with Apple’s Worldwide Developers Conference in mid June, when it said a new AI-powered Siri would enhance voice capabilities for Apple’s devices.
• Apple also said that ChatGPT would be embedded into the next version of Apple’s operating systems. Apple is expected to provide more in-depth information regarding new AI-equipped iPhones next month. Some of the AI updates coming include the curation of email summaries, photo generation, and the improved Siri.

What’s Next:

Citi crowned Apple as its top AI stock pick for 2025. “Move over Nvidia,” Citi analyst Atif Malik wrote. The company beat out the chip maker Nvidia, the most immediate beneficiary of the rise of AI, which reported July quarter earnings and revenue above Wall Street estimates on Wednesday.

—Angela Palumbo and Liz Moyer

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Dell Sales Top Estimates on Artificial Intelligence Server Demand

Dell Technologies posted better-than-expected revenue and earnings for its July quarter, boosted by strong demand for its servers powered by artificial intelligence. Chief Operating Officer Jeff Clarke said AI momentum accelerated in the quarter, with an increase in the number of enterprise customers buying AI products each quarter.

• Overall, revenue rose 9% to $25 billion. Servers and networking revenue increased 80% to a record $7.67 billion for the quarter, while revenue for artificial-intelligence servers rose 23% to $3.2 billion. Dell reported adjusted earnings of $1.89 a share.
• Investors have grown concerned about profitability, considering companies like Dell and Hewlett Packard Enterprise build equipment that relies on expensive components made by Nvidia and other chip makers. The operating margin for Dell’s server group was 11%, up from 8% in the prior quarter.
• Dell’s client solutions group, which includes personal computers, saw revenue fall 4% to $12.4 billion from a year ago. Client group adjusted operating income of $767 million declined from $969 million in the year-ago quarter, and was less than analysts expected.
• Sales of Dell’s business PCs were flat, while sales of consumer PCs were down 22%. A postpandemic slowdown in PC sales to consumers and business has recently shown signs of turning around, with second quarter industrywide shipments rising 3%, according to research firm IDC.

What’s Next: Dell management on a conference call provided a revenue outlook range of $24 billion to $25 billion for the current quarter ending in October, roughly in line with analysts’ current $24.6 billion consensus.

—Tae Kim and Janet H. Cho

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Pending Home Sales Lowest Since 2001 Amid Affordability Crisis

Soaring prices for houses and elevated mortgage rates have created an affordability crisis in the economy, becoming an issue for voters in the general election. The number of pending home sales fell sharply in July, to its lowest level since at least 2001 even as interest rates are falling.

• The pending home sales index dropped 5.5% to 70.2 from June, the lowest level in at least 23 years. Pending sales were 8.5% lower than last year, and National Association of Realtors chief economist Lawrence Yun confirmed a midsummer recovery never happened.
• The positive impact of job growth and higher inventory couldn't overcome affordability challenges and a wait-and-see attitude among some potential buyers. All four U.S. regions reported lower pending home sales in July, with the Midwest and the South reporting the sharpest monthly drops.
• With home buying and even renting still a challenge for millions of Americans, housing has emerged as a central issue of the elections, with both Democratic and Republican candidates promising to boost housing stock to bring prices down, promote tax breaks, and offer assistance to first-time buyers.
• The New England region has performed relatively better than other regions in recent months, in terms of home sales and prices, Yun said. He expects that as mortgage rates continue to drop, more potential buyers will step back into the market.

What’s Next: The 30-year fixed-rate mortgage declined to 6.46% on Thursday, according to FreddieMac. “Softer incoming economic data suggest rates will gently slope downward through the end of the year,” but rates will likely need to fall another percentage point to drum up buyer demand, the company said.

—Janet H. Cho

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Labor Day Travel Expected at Record Levels

Anyone traveling this Labour Day weekend should expect company: the Transportation Security Administration sees its busiest ever Labor Day travel period, preparing to screen 17 million travelers at airport checkpoints between Aug. 29 and Sept. 4.

• Summer travel volumes are already 8.5% higher than last year. Transportation security officers have screened 239.8 million people since Memorial Day weekend, an average of 2.7 million a day.
• Cool and comfortable weather is expected across most of the U.S. on the coolest Labor Day in 13 years, according to Weathertrends360 CEO Bill Kirk.
• Domestic travel is expected to increase 9% over the weekend compared with last year. However, international travel is predicted to be down 4% as the cost of traveling internationally has risen 11%, while domestic travel costs are 2% lower. Seattle and Alaska are top Labor Day destinations, according to AAA Travel.
• For those traveling by car, gasoline prices are lower than last year, averaging $3.346 a gallon as of Thursday—down 46 cents from last year’s $3.803, according to GasBuddy.

What’s Next: Increased travel within the U.S. may well boost the top lines of domestic airlines such as Delta, Southwest, and JetBlue . Separately, despite the popularity of summer road trips, gasoline demand is lower after driving habits changed following the Covid-19 pandemic, putting pressure on gas prices. However, hurricanes affecting regional refineries could still cause disruptions and lead to a spike in prices at the pump this fall.

—Janet H. Cho and Elsa Ohlen

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Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to thebarronsdaily@barrons.com.

1. The arrest of Pavel Durov, the founder and CEO of messaging app Telegram, in France last weekend prompted some to post protests on social media over what issue?

a. Free speech
b. Police tactics
c. Immigration
d. None of the above

2. Which of the following imposed a 100% tariff on electric vehicles from China this week?

a. European Union
b. Mexico
c. Canada
d. India

3. Which of the following companies has a market value that surpassed the $1 trillion mark, joining the Magnificent Seven among American companies that have reached that milestone?

a. United Healthcare
b. Berkshire Hathaway
c. Walmart
d. Broadcom

4. Eli Lilly will offer half-price vials of its popular Zepbound weight loss injection through which of the following venues?

a. Third party telehealth providers
b. Retail pharmacies
c. Its own LillyDirect telehealth platform
d. None of the above

5. Amazon.com ’s podcast studio Wondery signed which of the following for a three-year $100 million distribution and advertising deal?

a. The Duke and Duchess of Sussex
b. Tom Brady
c. Taylor Swift
d. Travis and Jason Kelce

Answers: 1(a); 2(c); 3(b); 4(c); 5(d)

—Barron’s staff

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner